Investor exit weighs on housing finance

Home loan approvals have fallen for the third time in four months, with a slowdown in lending to both investors and owner-occupiers in December.

The number of home loan approvals for owner occupiers fell 2.3 per cent, worse than market expectations for a 1.0 per cent decline.

Much of the weakness was concentrated in NSW and Victoria - the two largest property markets in the country.

The total value of housing finance also fell during the month, down 1.6 per cent to $32.88 billion, seasonally adjusted data from the Australian Bureau of Statistics showed.

The decline was led by a 2.6 per cent fall in the value of loans for investment housing to $11.86 billion but the value of new home loans to owner-occupiers also slipped 1.0 per cent to $21.07 billion.

JP Morgan economist Henry St John estimated the value of investor lending has declined 10 per cent through 2017, spurred by regulatory action.

"Given the large and ongoing adjustment in investor lending currently underway due to macro-prudential tightening, the weakness in owner-occupier lending becomes particularly relevant for economy-wide credit growth and property prices," he said.

Growth in the overheated housing market has subsided since the Australian Prudential Regulation Authority (APRA) in moved in March 2017 to cap interest-only mortgage lending.

This prompted a round of rate increases from banks that made interest-only and investor loans more expensive.

APRA Chairman Wayne Byres on Friday acknowledged the slowing down in the housing market and said APRA was willing to modify its interventions as more permanent measures come into play.

"These are temporary measures we have put in place to deliberately temper competitive pressures, which were having a negative impact on lending practices throughout the industry," he said in a speech to the A50 Australian Economic Forum in Sydney.

"While the direction in asset quality is positive, we're not declaring victory just yet. We still want to see that the improvements the industry has made are truly embedded into industry practice."

The Australian dollar slipped immediately after the release of the housing finance data and the Reserve Bank's quarterly Statement on Monetary Policy.

The local currency fell as low as 77.60 US cents compared to 77.85 US cents just ahead of the 1130 data release, but has since recouped most of the losses to be trading at 77.8 US cents at 1554 AEDT.